DALECO RESOURCES CORP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - DALECO RESOURCES CORP	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - DALECO RESOURCES CORP	v303082_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - DALECO RESOURCES CORP	v303082_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - DALECO RESOURCES CORP	v303082_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 0-12214

DALECO RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		23-2860734
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
17 Wilmont Mews, 5^th Floor West Chester, Pennsylvania 19382		(610) 429-0181
(Address of principal executive offices) (Zip Code)		(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £			Accelerated filer £
Non-accelerated filer £	(Do not check if a smaller reporting company)		Smaller reporting company S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Shares of Common Stock outstanding as of January 31, 2012: 48,988,914

Shares of Series B 8% Cumulative Convertible Preferred Stock outstanding of January 31, 2012: 145,000

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE
PART I - FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24

ITEM 4.	CONTROLS AND PROCEDURES	24

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	25

ITEM 1A.	RISK FACTORS	25

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	26

ITEM 4.	MINE SAFFETY DISCLOSURES	26

ITEM 5.	OTHER INFORMATION	26

ITEM 6.	EXHIBITS	27

SIGNATURES		28

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

Some of the information, including all of the estimates and assumptions, in this report contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this report, including, but not limited to, statements regarding our future financial position, business strategy, budgets, projected costs, savings and plans, objectives of management for future operations, legal strategies, and legal proceedings, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, or “continue” or the negative thereof or variations thereon or similar terminology. Except for statements of historical or present facts, all other statements contained in this report are forward-looking statements. The forward-looking statements may appear in a number of places and include statements with respect to, among other things: business objectives and strategic plans; operating strategies; acquisition strategies; drilling wells; oil and gas reserve estimates (including estimates of future net revenues associated with such reserves and the present value of such future net revenues); estimates of future production of oil, natural gas and minerals; expected results or benefits associated with recent acquisitions; marketing of oil, gas and minerals; expected future revenues and earnings, and results of operations; future capital, development and exploration expenditures; expectations regarding cash flow and future borrowings sufficient to fund ongoing operations and debt service, capital expenditures and working capital requirements; nonpayment of dividends; expectations regarding competition; impact of the adoption of new accounting standards and the Company’s financial and accounting systems; and effectiveness of the Company’s control over financial reporting.

These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Factors that may cause our actual results, performance, or achievements to be materially different from those anticipated in forward-looking statements include, among others, the following:

	•		adverse economic conditions in the United States and globally;
	•		difficult and adverse conditions in the domestic and global capital and credit markets;
	•		domestic and global demand for oil and natural gas and non-metallic minerals;
	•		volatility of the market prices for crude oil and natural gas and non-metallic minerals;
	•		the effects of government regulation, permitting, and other legal requirements;
	•		the geologic quality of our properties with regard to, among other things, the existence of hydrocarbons in economic quantities;
	•		uncertainties about the estimates of our oil and natural gas reserves;
	•		our ability to increase our production and oil and natural gas income through exploration and development;
	•		our ability to successfully apply horizontal drilling techniques and tertiary recovery methods;
	•		the number of well locations to be drilled, the cost to drill, and the time frame within which they will be drilled;
	•		the effects of adverse weather on operations;
	•		drilling and operating risks;
	•		the availability of equipment, such as drilling rigs, transportation pipelines and mining equipment;
	•		changes in our oil and gas drilling and minerals development plans and related budgets;
	•		the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity; and
	•		uncertainties associated with our legal proceedings and their outcome.

Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the respective document. Other unknown or unpredictable factors may cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and may be beyond our control. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31 2011			September 30 2011
ASSETS	(Unaudited)
Current Assets:
Cash and Equivalents	$	140,388		$	48,917
Accounts Receivable		323,942			582,761
Prepaid Consulting Services Agreement Fees		366,575			366,575
Other Current Assets		13,422			7,424
Total Current Assets		844,327			1,005,677
Other Assets:
Patent Rights		6,594,500			6,594,500
Accumulated Amortization of Patent Rights		(6,498,883	)		(6,354,520	)
Net Patent Rights		95,617			239,980
Patents License Rights		40,907			40,907
Accumulated Amortization of Patents License Rights		(26,127	)		(22,719	)
Net Patents License Rights		14,780			18,188
Prepaid Mineral Royalties – Long-term		509,265			479,268
Interest Receivable		192,972			188,253
Restricted Cash Deposits		108,938			108,478
Prepaid Consulting Services Agreement Fees		59,093			151,237
Securities Available for Future Sale		1			1
Total Other Assets		980,666			1,185,405
Property, Plant and Equipment:
Mineral Properties, at cost		9,877,128			9,877,128
Accumulated Depreciation, Depletion and Amortization		(95,000	)		(95,000	)
Net Mineral Properties		9,782,128			9,782,128
Oil and Gas Properties, at cost		4,424,512			4,424,512
Accumulated Depreciation, Depletion and Amortization		(4,051,939	)		(4,036,939	)
Net Oil and Gas Properties		372,573			387,573
Office Equipment, Furniture and Fixtures, at cost		61,502			61,502
Accumulated Depreciation		(61,502	)		(61,502	)
Net Office Equipment, Furniture and Fixtures		-			-
Total Net Property, Plant and Equipment		10,154,701			10,169,701
TOTAL ASSETS	$	11,979,694		$	12,360,783

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31 2011			September 30 2011
LIABILITIES AND SHAREHOLDERS’ EQUITY	(Unaudited)
Current Liabilities:
Accounts Payable	$	1,445,086		$	1,516,760
Revenue Payable to Oil and Gas Royalty and Other Working Interest Owners		1,012,124			1,010,332
Federal and State Income Taxes Payable		192,427			192,427
Accrued Interest Expense		1,044,468			985,079
Accrued Salary Expense		701,133			697,353
Accrued Expense Reimbursements		19,051			19,051
EV&T Note Payable		567,213			567,213
CAMI Notes Payable		514,881			514,881
Notes Payable - Related Parties		85,256			85,256
Premium Finance Note Payable		17,956			-
Note Payable - Other, net of unamortized discount of $782 and $7,397, respectively		32,531			33,328
Note Payable - First Citizens Bank – Current Portion		15,000			15,000
Total Current Liabilities		5,647,126			5,636,680

Long-term Debt:
Note Payable – First Citizens Bank – Long-term Portion		10,364			15,454
7.25% Convertible Debentures, net of unamortized discount of $6,373 and $6,992, respectively		38,627			38,008
Convertible Note Payable, net of unamortized discount of $41,995 and $44,639, respectively		349,159			346,515
Total Long-term Debt		398,150			399,977
Convertible Accrued Interest on Convertible Note Payable		7,502			3,489
Accrued Bonus Expense		1,373,831			1,373,831
Series B 8% Cumulative Convertible Preferred Stock Dividends Accrued		1,914,558			1,914,558
Future Abandonment Costs		10,000			10,000
TOTAL LIABILITIES		9,351,167			9,338,535
Commitments and Contingencies
SHAREHOLDERS’ EQUITY:
Preferred Stock – 20,000,000 shares authorized
Series A Preferred Stock - par value of $0.01 per share (outstanding: none)		-			-
Series B 8% Cumulative Convertible Preferred Stock – par value of $0.01 per share (outstanding: 145,000 shares); liquidation preference of $1,450,000 plus arrearages in cumulative dividends of $1,943,796 and $1,914,558, respectively		1,450			1,450
Common Stock – 100,000,000 shares authorized – par value of $0.01 per share (outstanding: 48,988,914 shares)		489,889			489,889
Additional Paid-in Capital		46,747,857			46,718,270
Accumulated Deficit		(44,028,970	)		(43,605,662	)
Subscriptions Receivable		(576,000	)		(576,000	)
Accumulated Other Comprehensive Loss		(5,699	)		(5,699	)
TOTAL SHAREHOLDERS’ EQUITY		2,628,527			3,022,248
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	11,979,694		$	12,360,783

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

(UNAUDITED)

	Three Months ended December 31
	2011			2010
Revenues:
Oil and Gas Sales	$	114,224		$	89,025
Well Management Revenue		71,440			71,440
Royalty Receipts		1,513			1,561
Mineral Sales		1,267			6,605
Total Operating Revenues		188,444			168,631
Expenses:
Lease Operating Expenses - Oil and Gas		48,020			46,877
Operating Expenses and Other Costs - Minerals		3,003			7,291
Production and Severance Taxes – Oil and Gas		6,374			5,316
Depreciation, Depletion and Amortization		162,771			174,428
General and Administrative Expenses		305,996			209,607
Total Expenses		526,164			443,519
Loss From Operations		(337,720	)		(274,888	)
Other Income (Expense):
Interest and Dividend Income		5,203			5,622
Interest Expense		(90,791	)		(68,289	)
Total Other Income (Expense), Net		(85,588	)		(62,667	)
Loss Before Income Taxes		(423,308	)		(337,555	)
Taxes Based on Income		-			-
Net Loss		(423,308	)		(337,555	)
Preferred Stock Dividends, accumulated and accrued, respectively		(29,238	)		(29,238	)
Net Loss Applicable to Common Shareholders	$	(452,546	)	$	(366,793	)

Basic and Fully Diluted Net Loss per Share	$	(0.01	)	$	(0.01	)
Weighted-average Number of Shares of Common Stock Outstanding		48,988,914			45,555,252

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

(UNAUDITED)

	2011			2010
Cash Flows From Operating Activities:
Net Loss	$	(423,308	)	$	(337,555	)
Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization		162,771			174,428
Amortization of Prepaid Consulting Services Agreement Fees		92,145			-
Amortization of Discount on Note Payable – Other		6,614			-
Amortization of Discount on 7.25% Convertible Debentures		619			693
Amortization of Discount on Convertible Note Payable		2,644			-
Non-cash Charge as Interest Expense		-			7,154
Stock-based Compensation Expense		29,587			16,720
Changes in Operating Assets and Liabilities:
Receivables		254,100			(42,634	)
Prepaid Mineral Royalties		(29,997	)		(29,767	)
Other Current Assets		(5,998	)		-
Restricted Cash Deposits		(460	)		(577	)
Accounts Payable		(71,674	)		140,948
Revenue Payable		1,792			(4,244	)
Accrued Interest Expense		63,402			31,022
Other Accrued Expenses		3,779			4,698
Net Cash Provided By (Used in) Operating Activities		86,016			(39,114	)

Cash Flows From Financing Activities:
Payments on Notes and Debt		(14,197	)		(14,411	)
Proceeds from Borrowings		19,652			21,779
Net Cash Provided By Financing Activities		5,455			7,368

Net Change in Cash and Equivalents		91,471			(31,746	)
Cash and Equivalents at Beginning of Period		48,917			121,447
Cash and Equivalents at End of Period	$	140,388		$	89,701

Supplemental Information:
Income Taxes Paid	$	-		$	-
Interest Paid	$	1,047		$	13,610
Supplemental Disclosure of Non-cash Transactions:
Preferred Dividends Not Paid, Accumulated and Accrued, respectively	$	29,238		$	29,238
Issuance of Common Stock for Services Performed	$	-		$	42,921
Interest Expense Resulting from Issuance of Common Stock for Services Performed	$	-		$	7,154

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

1. CONTINUED OPERATIONS AND GOING CONCERN

The unaudited consolidated financial statements have been prepared on the basis of a going concern which contemplates that Daleco Resources Corporation and subsidiaries (the “Company”) will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate its assets. At December 31, 2011, the Company’s current assets total $844,327. The Company incurred a net loss applicable to common shareholders of $452,546 for the three months ended December 31, 2011. The ability of the Company to meet its current liabilities of $5,647,126 and its total liabilities of $9,351,167 and to continue as a going concern is dependent upon the availability of future funding, achieving profitability within its mineral segment and ongoing profitability within its oil and gas operations. If the Company is unable to continue as a going concern, there is uncertainty relative to full recoverability of its assets. The financial statements do not reflect any adjustments relating to these uncertainties.

On February 25, 2011, the Company entered into a Consulting Services Agreement with the Musser Group, LLC (“Musser Group”) to perform consulting services for the Company through February 2013. The Company engaged the Musser Group, an independent contractor, to provide advisory and consulting services to the Company. The Musser Group is engaged to provide (i) managed services; (ii) strategic business planning and implementation; and (iii) assistance in directing and executing the implementation of any strategies approved by the Board of Directors of the Company. The Musser Group’s primary focus is the analysis and validation of market opportunities for the commercialization of products within the Company’s mineral segment.

The Company will continue to seek out and entertain project specific funding commitments and other capital funding alternatives if and when they become available.

As of December 31, 2011, the Company and certain of its subsidiaries were in default of various obligations and certain debt obligations classified as Current Liabilities in the accompanying Balance Sheet as set forth in the following table:.

Such defaulted obligations at December 31, 2011 include the following:

Amounts included in accounts payable:
Vendor Settlement	$	15,000
Consulting Services - Blackstone		166,185
EV&T – fees and expenses		260,620
EV&T note payable and accrued interest		975,580
CAMI notes payable and accrued interest		1,030,470
Accrued salary expense		701,133
Total	$	3,148,988

The majority of the above amounts are owed to related parties. Such related parties and EV&T are working with the Company to achieve the ultimate extinguishment of the obligations as the Company attempts to achieve profitability within its mineral segment.

To obtain capital in the past, the Company’s capital obtainment methods have included selling its interest in certain oil and gas properties, and borrowing funds from and issuing Common Stock to related and unrelated parties, as well as utilizing joint venture structures. If the Company is not successful in increasing its operating cash flows and the preceding financing methods are not available, the Company may not be able to sustain its operations and may need to seek alternative actions to preserve shareholder value. See Note 10.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

2. BASIS OF PRESENTATION

Description of Business

Daleco Resources Corporation (“DRC”) is a Nevada corporation and its Articles provide for authorized capital stock of 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. The Company is a natural resources holding company whose subsidiaries are engaged in (i) the exploration, development and production of oil and gas; (ii) the exploration for naturally occurring minerals; (iii) the marketing and sales of such minerals; and (iv) the marketing and sales of patented products and processes utilizing the Company’s minerals. The Company's assets consist of two separate categories: oil and gas and non-metallic minerals. The Company’s wholly-owned active subsidiaries include Westlands Resources Corporation, Deven Resources, Inc., DRI Operating Company, Inc., Clean Age Minerals, Inc. and CA Properties, Inc.

Clean Age Minerals, Inc., through its wholly-owned subsidiary, CA Properties, Inc. (collectively “CAMI”), owns fee interests, leasehold interests and federal mining claims containing non-metallic minerals (kaolin and zeolite) in the states of New Mexico, Texas and Utah. CAMI is presently engaged in the exploration for such minerals and intends to mine the minerals through the use of contract miners and arrangements with its joint venture partners.

The Company, through its subsidiaries, Westland Resources Corporation, DRI Operating Company and Deven Resources, Inc., owns and operates oil and gas properties in Texas and West Virginia. The Company owns (a) working interests in wells in Texas and West Virginia and (b) overriding royalty interests in (i) seventy wells in the Deerlick Coalbed Methane Field in Alabama and (ii) two wells in Pennsylvania and (iii) one well in Texas.

In February 2010, the Company entered into a License Agreement concerning two US method patents for the treatment of wastewaters. Such patents utilize the Company’s zeolite. The license applies to the US and covers the use of the patented technology in water, wastewater and waste treatment in animal feed operations, agriculture, and aquaculture. In addition, the license applies to the treatment of sanitary wastewater on Federal facilities, military bases and lands administered by the US Bureau of Indian Affairs.

The Company is primarily engaged in the exploration for minerals and oil and gas activities. We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as “FASB”. The FASB sets generally accepted accounting principles (“GAAP”) that we follow to ensure we consistently report our financial position, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification, sometimes referred to as the “Codification” or “ASC”. From time to time, the FASB issues an Accounting Standards Update (“ASU”) which may impact the financial statements and disclosures therein (see “Recent Accounting Pronouncements”).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2011. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended December 31, 2011 are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended September 30, 2011, included in the Company’s annual report on Form 10-K (“2011 Annual Report”).

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Unless otherwise noted, references to “year” pertain to the Company’s fiscal year, which begins on October 1 and ends on September 30; for example, 2012 refers to fiscal 2012, which is the period from October 1, 2011 to September 30, 2012.

Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Fair Value Measurements

The Company’s only financial instruments are (a) cash, securities available for future sale, and short-term trade receivables, payables and debt, and (b) a long-term note payable to a bank. The carrying amounts reported in the accompanying consolidated financial statements for cash, securities available for future sale, and short-term trade receivables, payables and debt approximate fair values because of the immediate nature of short-term maturities of these financial instruments. Based on the borrowing rates currently available to the Company for long-term bank loans with similar terms and average maturities, the carrying amount of long-term and short-term bank debt totaling $25,364 approximates fair value at December 31, 2011.

Significant Accounting Policies

There have been no changes in significant accounting policies from those disclosed in the 2011 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments of this ASU are effective at the same time as the amendments in ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, so that entities will not be required to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12 is deferring. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The Company is currently assessing the impact that the adoption will have on its financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Offsetting, otherwise known as netting, is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet). Unlike IFRS, U.S. GAAP allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy. To address these differences between IFRS and U.S. GAAP, in January 2011 the FASB and the IASB (the Boards) issued an exposure draft that proposed new criteria for netting that were narrower than the current conditions currently in U.S. GAAP. Nevertheless, in response to feedback from their respective stakeholders, the Boards decided to retain their existing offsetting models. Instead, the Boards have issued common disclosure requirements related to offsetting arrangements to allow investors to better compare financial statements prepared in accordance with IFRS or U.S. GAAP. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is currently assessing the impact that the adoption will have on its financial statements.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

In December 2011, the FASB issued ASU No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. ASU No. 2011-10 represents the consensus reached in EITF Issue No. 10-E, "Derecognition of in Substance Real Estate." The objective of this ASU is to resolve the diversity in practice about whether the guidance in FASB ASC Subtopic 360-20, “Property, Plant, and Equipment -- Real Estate Sales,” applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. ASU 2011-10 provides that when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Codification Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. The Company is currently assessing the impact that the adoption will have on its financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted. The Company is currently assessing the impact that the adoption will have on its financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in ASU 2011-04 early, but no earlier than for interim periods beginning after December 15, 2011. The Company is currently assessing the impact that the adoption will have on its financial statements.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

3. OIL AND GAS PROPERTIES SEGMENT INFORMATION

Results of Operations for Oil and Gas Producing Activities for the Three Months Ended December 31, 2011 and 2010:

	Three Months Ended December 31
	2011		2010
Revenues:
Oil and gas sales	$	114,224	$	89,025
Well management revenue		71,440		71,440
Royalty receipts		1,513		1,561
Total revenues		187,177		162,026
Lease operating expenses		48,020		46,877
Production and severance taxes		6,374		5,316
Depreciation, depletion, amortization and valuation provisions		15,000		25,350
Total expenses		69,394		77,543
		117,783		84,483
Income tax expenses		-		-
Results of operations from oil and gas producing activities (excluding corporate overhead and interest costs)	$	117,783	$	84,483

See Note 10.

4. MINERAL PROPERTIES SEGMENT INFORMATION

The Company is an exploration stage company in respect to its mineral holdings.

Results of Operations for Minerals Properties Activities for the Three Months Ended December 31, 2011 and 2010:

	Three Months Ended December 31
	2011			2010
Mineral Sales	$	1,267		$	6,605
Operating and other expenses		(3,003	)		(7,291	)
Depreciation, depletion, amortization and valuation provisions		(147,771	)		(147,771	)
		(149,507	)		(148,457	)
Income tax expenses		-			-
Results of operations from mineral properties activities (excluding corporate overhead and interest costs	$	(149,507	)	$	(148,457	)

5. NOTES PAYABLE

Premium Finance Note Payable

During November 2011, the Company entered into a Premium Finance Note Payable for $19,652 to finance certain insurance premiums. The maturity date of the note is October 1, 2012 and the interest rate is 12.4%. Consistent with the provisions of the note, the Company is required to make monthly payments of principal and interest of $1,899. The balance of the Note at December 31, 2011 is $17,956.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Note Payable - Other

On January 12, 2011, the Revocable Trust Created by Ian B. Jacobs under Agreement dated November 25, 1999, an unrelated entity, loaned the Company $60,000. The note requires monthly payments of principal and interest (5.5%) totaling $2,645. The maturity date of such loan is January 12, 2012, with a scheduled final payment of $33,469 (see Note 10). In connection with this loan, the Company issued warrants for the purchase of 500,000 shares of Common Stock at a purchase price of $0.15 per share. The warrants expire on December 31, 2015. In recording the transaction, the Company allocated the value of the proceeds to the note and the warrants based on their relative fair values. The fair value of the warrants was determined using the Black-Scholes valuation model using the following assumptions: a contractual term of 5 years, risk free interest rate of 1.99%, dividend yields of 0%, and volatility of 163%. The allocated value of the warrants was $33,337 and such amount was recorded as a discount on the note. The discount is being amortized over the life of the note and $6,614 is included in interest expense during the three months ended December 31, 2011. The unamortized balance of the discount at December 31, 2011 was $782. As of December 31, 2011, the principal balance due on the note was $33,313 and accrued interest on the note totals $94.

Convertible Note Payable and Amir Settlement Agreement

On July 12, 2011, the Company entered into a Settlement Agreement with Dov Amir (“Amir”), a former director of the Company, as discussed in Note 6 of the Notes to Consolidated Financial Statements included in the 2011 Annual Report. Among other provisions, Amir was granted the right to convert any and all amounts due him under the note into shares of Common Stock at a conversion price of $0.25 per share. As a result of granting the conversion rights relating to the note, the Company recognized $46,938 as a discount on the note at July 12, 2011, resulting from the beneficial conversion feature. The discount was determined based on the fair value of the Company’s Common Stock in comparison to the conversion price on the date of the note.

Further, each month the Company evaluates the beneficial conversion feature in respect to the interest accrued on the note during such month and determines if any discount is applicable to the beneficial conversion feature related to such interest. The Company has determined that no discount is applicable to the accrued interest relating to the beneficial conversion privilege through December 31, 2011.

The discount is being amortized over the life of the note and $2,644 is included in interest expense during the three months ended December 31, 2011. The unamortized balance of the discount at December 31, 2011 was $41,995. As of December 31, 2011, the principal balance due on the note was $391,154 and accrued interest on the note totals $7,502. The if-converted value of the Convertible Note and Interest Payable at December 31, 2011, approximates $255,000.

6. 7.25% CONVERTIBLE DEBENTURES

During the three months ended December 31, 2011, the Company did not issue any Debentures nor were any Debentures converted to Common Stock. The Company closed the offering period for the Debentures in January 2012. Debentures held by a Director totaling $45,000 are outstanding at December 31, 2011. During the three months ended December 31, 2011 and 2010, the Company recognized contractual coupon interest of $822 and $549, respectively, and amortization of the discount of $619 and $693, respectively. Such amounts are included in interest expense. The effective interest rate for the three months ended December 31, 2011 and 2010 was 16% and 17%, respectively. The if-converted value of the Debentures at December 31, 2011, approximates $51,000.

7. CAPITAL STOCK

Common Stock

The Company issued no shares of Common Stock during the three months ended December 31, 2011.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Series A Preferred Stock

No shares of Series A Preferred Stock were issued during the three months ended December 31, 2011. No shares were outstanding at December 31, 2011, and September 30, 2011.

Series B 8% Cumulative Convertible Preferred Stock

No shares of Series B Preferred Stock, par value of $0.01 per share, were issued or converted to Common Stock during the three months ended December 31, 2011. Shares outstanding at December 31, 2011, and September 30, 2011, totaled 145,000. Such shares are convertible into shares of Common Stock on the basis of their $10.00 per share stated value, at the exchange rate per common share of 85% of the average of the closing price of the Common Stock for the five trading days immediately preceding the date when shares of Series B Preferred Stock are delivered to the Company for conversion, but in no event shall the conversion price be less than $1.25 per share. Thus, at December 31, 2011, the 145,000 shares of Series B Preferred Stock were convertible into 1,160,000 shares of Common Stock.

Further, the shares of Series B Preferred Stock (i) earn dividends at the rate of 8% per annum computed on the basis of a 365 day year, and (ii) have priority in liquidation to the extent of the stated value of $10.00 per share plus any unpaid dividends over any other preferred stock, common stock or any other stock issued after September 19, 2000. At December 31, 2011, the liquidation preference totals $3,393,796 (stated value of $1,450,000 plus arrearages in cumulative dividends of $1,943,796.

Dividends

There were no cash dividend payments in respect to Common Stock or either series of Preferred Stock during the three months ended December 31, 2011.

During the fourth quarter of fiscal 2011, the Company paid $59,338 of dividends on the Company's Series A Preferred Stock by issuing 237,352 shares of Common Stock. The only dividends paid prior to fiscal 2010 on the Company's Series B Preferred Stock were in shares of Common Stock at the time of conversion of the respective shares of such Preferred Stock into Common Stock.

At September 30, 2011, accrued but unpaid dividends on Series B Preferred Stock totaled $1,914,558. As of October 1, 2011, the beginning of fiscal 2012, the Company no longer accrues dividends on the Series B Preferred shares due to the very low probability that the holders of the Series B Preferred Stock at September 30, 2011, will elect to convert such shares into shares of Common Stock. Also, the Company is not required to pay dividends by issuing shares of its Common Stock. The Company intends to pay dividends on the Series B Preferred shares when its financial condition makes any such payment appropriate. At December 31, 2011, the cumulative dividends in arrears applicable to the Series B Preferred Stock totals $1,943,796.

Options and Warrants to Purchase Common Stock

	Number of Options and Warrants			Weighted Average Price per Share
Options and warrants outstanding at September 30, 2011		5,650,000		$	0.20
Options expired		(200,000	)	$	0.67
Options and warrants outstanding at December 31, 2011		5,450,000		$	0.18

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Summarized information relating to the stock options to purchase Common Stock outstanding as of December 31, 2011, is as follows:

	Options Outstanding						Options Exercisable
Exercise Price per Share	Number of Shares Underlying Options Unexercised		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Years)		Number of Shares Underlying Options Exercisable		Weighted Average Exercise Price Per Share
$0.21-$0.28		2,350,000	$	0.22		3.32		1,225,000	$	0.22

Stock-based Compensation

During the three months ended December 31, 2011, the Company granted no options for the purchase of shares of Common Stock. There are options to purchase 1,850,000 shares of Common Stock outstanding as of December 31, 2011, which options are held by current officers, Directors and employees of the Company (“Insiders”). The exercise prices for the options held by Insiders range from $0.21 per share to $0.28 per share.

In accordance with FASB ASC Topic 718, Compensation – Stock Compensation, the Company recorded stock-based compensation expense for the three months ended December 31, 2011 and 2010 of $29,587 and $16,720, respectively, relating to stock options granted to Insiders. Such expense is included in General and Administrative Expenses. No tax benefit has been recognized. Compensation costs are based on the fair value at the grant date. The fair value of the options has been estimated by using the Black-Scholes option-pricing model with the following assumptions: risk free interest rates between 2.05% and 4.52%; expected life of five years; and expected volatility between 37% and 167%.

Net Income (Loss) Per Share

Net income (loss) per share is computed in accordance with FASB ASC Topic 260, Earnings per Share. Basic net income (loss) per share is calculated by dividing the net income (loss) available to common stockholders by the weighted average number of shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, dilutive common equivalent shares are excluded from the loss per share calculation as the effect would be anti-dilutive.

Options and warrants to purchase shares of Common Stock were outstanding during the periods but have not been included in the computation of diluted earnings per share because such shares would have an anti-dilutive effect on net loss per share. The shares of Common Stock issuable upon the conversion of the 7.25% Convertible Debentures and the Convertible Note Payable (see Note 6) have not been included in the computation of diluted earnings per share because such shares would have an anti-dilutive effect on net loss per share. The shares of Common Stock issuable upon the conversion of the Series B 8% Cumulative Convertible Preferred Stock have not been included in the computation of diluted earnings per share because the price at which such shares are convertible was in excess of the market price of the Common Stock at December 31, 2011. No other adjustments were made for purposes of per share calculations.

8. INCOME TAXES

At December 31, the Company has current federal and state taxes payable of $192,427 and no deferred tax asset or liability. The Company has accrued $104,924 at December 31, 2011, for interest related to the federal and state income taxes. The federal income tax liabilities arose primarily from alternative minimum tax for fiscal 2004. See Note 10. Interest expense related to tax liabilities is included in Interest Expense in the accompanying Consolidated Statement of Operations.

The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes”. ASC 740 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. The Company has available at September 30, 2011, operating loss carryforwards of approximately $25 million, which may be applied against future taxable income and will expire in various years through 2025. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined at this time. Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards; therefore, no net deferred tax asset has been recognized. No potential benefit of these losses has been recognized in the financial statements. The company may be subject to IRC code section 382 which could limit the amount of the net operating loss and tax credit carryovers that can be used in future years.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Below is a reconciliation of the reported amount of income tax expense attributable to continuing operations for the period to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax loss for the three months ended December 31, 2011 and 2010:

Income tax benefit computed at the statutory Federal income tax rate	(35	)%
Change in valuation allowance	35	%
Effective income tax rate	0	%

Included in the table below are the components of income tax expense for the three months ended December 31, 2011 and 2010:

	Three Months Ended December 31
	2011			2010
Current income tax expense (benefit)	$	-		$	-
Deferred income tax expense (benefit)		(148,158	)		(118,144	)
Valuation allowance		148,158			118,144
Total income tax expense (benefit)	$	-		$	-

9. PENDING LITIGATION

During October 2009, a working interest owner commenced an action against a subsidiary of the Company (“WRC”) in the District Court of Burleson County, Texas, for an accounting of expense and revenues for six wells. WRC, through its Texas counsel, has filed a general denial of the claim. In November 2009, WRC provided the plaintiff with a complete accounting for all wells in question. The plaintiff has sought additional discovery and WRC has provided additional information. The action is ongoing.

During September 2010, a complaint was filed against WRC in the District Court of Burleson County, Texas, seeking judgment in respect to $92,921 owed to a vendor of WRC. In November 2010, the vendor agreed to dismiss its complaint against WRC after a settlement agreement was reached whereby WRC made an initial payment of $30,000 in cash and delivered 357,677 shares of the Company’s Common Stock (consideration to the vendor of $42,921). The Company did not retire the remaining obligation by March 1, 2011, as required by the settlement agreement. During the three months ended December 30, 2010, the Company recognized $7,154 of interest expense relating to the fair value of the shares of its Common Stock issued to such vendor. In December 2011, WRC paid $5,000 to such vendor. The remaining obligation of $15,000 is included in Accounts Payable in the accompanying Consolidated Balance Sheet at December 31, 2011.

DALECO RESOURCES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

10. SUBSEQUENT EVENTS

Note Payable - Other

In January 2012, the Company entered into an amended and restated note (see Note 5) with a maturity date of March 12, 2012. The note requires monthly payments of principal and interest (5.5%) totaling $2,645 with a scheduled final payment of $28,595.

Sale of Oil and Gas Property Leasehold Rights

On January 20, 2012, the Company entered into a purchase and sale agreement (the “PSA”) pursuant to which the Company has agreed to sell certain oil and natural gas leasehold rights for cash of $898,355, subject to adjustment as to any title defect that is not cured within the timeframe permitted by the PSA. The closing date is February 15, 2012, or such other date as the sellers and buyer may designate (the “Closing Date”). The sale is effective as of the Closing Date. The PSA provides that the buyer may have additional time to review the sellers’ title. In the event the buyer asserts a title defect, the Company will have not less than ten working days following receipt of such assertion to cure such title defect so as to be able to deliver to buyer marketable title or to remove the defective lease from the transaction. A provision of the PSA requires that the Company shall not make any public announcement or statement concerning the PSA other than that which the Company is required to disclose on Form 8-K and other filings with the Securities and Exchange Commission.

On February 14, 2012, the Company delivered certain title documents to the buyer to enable buyer to conclude its review of title. The buyer requires an additional period of time to finalize its title review. Although the buyer has not asserted a title defect, sellers agreed that the title review period would be extended until on or about March 6, 2012. The Company will recognize a gain in the amount of proceeds ultimately received.

Installment Agreement – Federal Income Taxes

On February 16, 2012, the Company entered into an installment agreement with the Department of Treasury – Internal Revenue Service (“IRS”) in respect to income taxes and interest thereon relating to fiscal 2004 (see Note 8). The agreement requires monthly payments of not less than $2,150 commencing in February 2012 and continuing for 72 months or until the balance ($153,514 as of February 1, 2012) has been paid in full. The IRS has filed a notice of Federal tax lien. The Company will request audit reconsideration and continue to submit information to the IRS which supports the Company’s position that it was not subject to alternative minimum tax related to fiscal 2004.

Management’s Evaluation

Management performed an evaluation of Company activity through the date the unaudited consolidated financial statements were prepared for issuance, and concluded that there are no other significant subsequent events requiring disclosure.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes the matters that we consider being important in understanding the results of our operations for the three months ended December 31, 2011 and our financial condition as of December 31, 2011. Our fiscal year begins on October 1 and ends on September 30. Unless otherwise noted, references to "year" pertain to our fiscal year; for example, 2012 refers to fiscal 2012, which is the period from October 1, 2011 to September 30, 2012. In the discussion that follows, we analyze the results of our operations for the three months ended December 31, 2011, including the trends in our overall business, followed by a discussion of our financial condition.

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto, all included elsewhere in this report. The forward-looking statements in this section and other parts of this report involve risks and uncertainties including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption "Forward-Looking Statements."

Results of Operations

For the three months ended December 31, 2011 and 2010:

	Three Months Ended December 31
	2011			2010
Revenues	$	188,444		$	168,631
Net Loss	$	(423,308	)	$	(337,555	)

Oil and Gas Production and Cost Information:
Production:
Oil (Bbl)		675			485
Gas (Mcf)		8,348			8,307
Average Price:
Oil (per Bbl)	$	93.88		$	83.42
Gas (per Mcf)	$	6.09		$	5.85
Mcfe	$	9.21		$	7.94

Lease Operating Expenses and Production and Severance Taxes per Mcfe	$	4.39		$	4.65

_____

Bbl = One barrel of oil or condensate

Mcf = One thousand cubic feet

Mcfe = One thousand cubic feet gas equivalent

CONSULTING SERVICES AGREEMENT

The Company issued 2,400,000 shares of Common Stock to individuals associated with the Musser Group in connection with the Consulting Services Agreement with the Musser Group. Also, the Company issued to individuals associated with the Musser Group warrants for the purchase of 2,500,000 shares of Common Stock at an exercise price of $0.15 per share. The warrants may not be exercised unless and until the average bid and asking closing price of the Company’s Common Stock exceeds $1.00 per share for a period of thirty consecutive trading days. The warrants are exercisable through February 24, 2016. The Company filed a registration statement under the Securities Act of 1933 on Form S-8 for the shares of Common Stock issued to individuals associated with the Musser Group. The Company determined the fair value of the shares of Common Stock and the warrants issued to individuals associated with the Musser Group to be $735,153 and recorded such amount as prepaid consulting fees. The prepaid consulting fees are being amortized over the life of the agreement.

OIL AND GAS OPERATIONS

Oil and Gas Sales

Oil and Gas Sales increased to $114,224 for the three months ended December 31, 2011 from $89,025 for three months ended December 31, 2010. See the table above in respect to production, average prices and lease operating expenses and production and severance taxes per Mcfe. The level of oil production experienced during the current fiscal quarter increased primarily as a result of four wells being brought back “on-line” (certain wells had been “off-line” during 2010 and a portion of 2011 for repair) which offset the anticipated decline in production from the wells. At December 31, 2011, two wells in Texas were off-line awaiting repairs to certain mechanical items such as tubing, rods, down-hole pumps and/or pumping units. Generally, a well is off-line for less than two months; however, rig availability from third party contractors impacts the timing of the well work.

Well Management Revenue

Well Management Revenue of $71,440 was unchanged from the prior year quarter. The amounts which may be charged by the Company for well management are set forth in the joint operating agreements governing the wells operated by the Company.

Lease Operating Expenses and Production and Severance Taxes

Lease Operating Expenses and Production and Severance Taxes increased to $54,394 for the three months ended December 31, 2011 from $52,193 for three months ended December 31, 2010. The increase in Lease Operating Expenses and Production and Severance Taxes per Mcfe is primarily the result of the increase in oil production.

Depreciation, Depletion and Amortization - Oil and Gas

Depreciation, depletion and amortization (“DD&A”) – Oil and Gas totaled $15,000 and $25,350 for the three months ended December 31, 2011and 2010, respectively. Such decrease is primarily the result of the upward revision of proved developed reserves at the end of fiscal 2011 resulting primarily from the increase in oil and gas prices which the Company receives for its oil and gas production.

Minerals Operations

The Company is an Exploration Stage company in respect to its mineral holdings.

Minerals Sales

Minerals sales totaled $1,267 and $6,605 during the three months ended December 31, 2011 and 2010, respectively. The decrease resulted from no shipments of zeolite being made during the current quarter in respect to the feed supplements.

Minerals Exploration Expenses

The Company did not incur minerals exploration expenses during the periods ended December 31, 2011 and 2010. These expenses are primarily for costs associated with the exploration and quantification of mineral resources and mineral reserves. Such expenses related to the kaolin reserves were the responsibility of the Company’s partner.

Minerals Operating Expenses and Other Costs

Minerals operating expenses and other costs totaled $3,003 and $7,291 for the three months ended December 31, 2011and 2010, respectively. The decrease is primarily a result of the decrease in shipments during the current quarter.

Depreciation, Depletion and Amortization - Minerals

DD&A - Minerals totaled $147,771 for each of the three months ended December 31, 2011and 2010, respectively. Such amounts are amortization of Patent Rights and Patents License Rights. The Company’s patent expired in February 2012. Once the Company produces commercial quantities of any of its mineral deposits, the Company will use the unit-of-production method in calculating cost depletion.

Depreciation, Depletion and Amortization - Other

DD&A - Other totaled $1,307 for the three months ended December 31, 2010. The related assets were fully depreciated as of September 30, 2011.

General and Administrative Expenses

General and administrative expenses totaled $305,996 and $209,607 for the three months ended December 31, 2011and 2010, respectively. The Company recorded stock-based compensation expense of $29,587 and $16,720 for the three months ended December 31, 2011and 2010, respectively. The Company recorded amortization expense of $92,145 during the three months ended December 31, 2011, related to the prepaid consulting fees paid to the Musser Group (see “Consulting Services Agreement” discussed above).

Interest Expense

Interest expense totaled $90,791 and $68,289 for the three months ended December 31, 2011 and 2010, respectively. During the three months ended December 31, 2010, the Company recognized $7,154 as interest expense relating to the issuance of its Common Stock as discussed in Note 9 of the Notes to Unaudited Consolidated Financial Statements. During the three months ended December 31, 2011 and 2010, the Company recognized $9,877 and $693, respectively, as interest expense regarding the amortization of discounts on debt issuances as discussed in Notes 5 and 6 of the Notes to Unaudited Consolidated Financial Statements. The remainder of the increase in interest expense is primarily the result of an increase in the underlying obligations.

Liquidity and Capital Resources

The Company’s cash flow provided by operating activities was $86,016 for the three months ended December 31, 2011. Accounts payable decreased $71,674 during such fiscal quarter. Funds have been and are being deployed in efforts to enhance the commercial viability of the Company’s existing resource assets, to identify potential expansion opportunities and to retire obligations associated with the Company’s assets. The Company’s net cash at September 30, 2011 totaled $140,388. As of December 31, 2011, the Company and certain of its subsidiaries were in default of various obligations and certain debt obligations (see Notes to Unaudited Consolidated Financial Statements and Notes 1, 6, 7, 9, 10 and 11 of the Notes to Consolidated Financial Statements included in the 2011 Annual Report).

Such defaulted obligations at December 31, 2011 include the following:

Amounts included in accounts payable:
Vendor Settlement	$	15,000
Consulting Services - Blackstone		166,185
EV&T – fees and expenses		260,620
EV&T note payable and accrued interest		975,580
CAMI notes payable and accrued interest		1,030,470
Accrued salary expense		701,133
Total	$	3,148,988

Liquidity is a measure of a Company’s ability to access cash. The Company has historically addressed its long-term liquidity requirements through the issuance of equity securities and borrowings or debt financing for certain activities. The Company estimates its capital needs to approximate $390,000 for fiscal 2012 to satisfy debt payments to unrelated parties and current operating costs and expenses. The Company believes the related parties will continue working with the Company to achieve the ultimate extinguishment of obligations due such parties.

At present, the Company does not have in place a credit facility or other line of credit upon which it may draw. As operating activities increase, the Company will evaluate the need for such a credit facility. For desired acquisitions or project enhancements, the Company must seek project specific financing. None of the Company’s properties are encumbered.

The prices the Company receives for its oil and gas and the level of production have a significant impact on the Company’s cash flows. The Company is unable to predict, with any degree of certainty the prices the Company will receive for its future oil and gas production and the success of the Company’s exploration, exploitation and production activities. Increases in the sales of the Company’s minerals, which to date have not been mined in substantial commercial quantities, will also affect cash flow.

In an effort to address the liquidity shortfall, the Company continues its cost containment procedures which have included staff decreases, sold certain of its oil and gas properties, and is evaluating the sale of certain additional oil and gas properties. It may take months and possibly longer to sell these properties at a suitable price. The market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand that are beyond our control. We cannot predict whether we will be able to sell a property for the price or on terms acceptable to us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of any property.

During June 2009, the Company offered a Private Placement under the provisions of Regulation D promulgated under the Securities Act of 1933, as amended (the “2009 Private Placement”). Private Placement consists of up to Five Hundred Thousand Dollars ($500,000) of 7.25% Convertible Debentures (“Debentures” or “Debenture”). The Debentures offered by the Company, are five (5) year instruments maturing on July 30, 2014, bearing interest at seven and one quarter percent (7.25 %) per annum on the balance outstanding from time to time. Interest will commence to accrue immediately upon issuance of the Debentures and will be paid quarterly on each September 30, December 31, March 31 and June 30, which the Debentures are outstanding. Payment of principal will commence on September 30 following the second anniversary of the Closing Date of this Offering. The debentures are convertible at a conversion price equal to the greater of either $0.14 per share or an amount equal to 80% of the average of the closing bid and ask prices of the Common Stock for the 5 trading days immediately preceding the conversion date. Through December 31, 2011, this private placement raised $259,000 (net of fees and expenses) for the Company. The Company utilized the proceeds of this private placement for general working capital purposes.

Through September 30, 2009, all of the purchasers of the Debentures elected to immediately convert such holdings into shares of Common Stock at an average conversion price of $0.14 per share and, accordingly, the Company issued 1,019,465 shares of Common Stock. As of September 30, 2009, this private placement had raised $128,500 (net of fees and expenses totaling $14,225) for the Company.

During 2010, the Company issued Debentures totaling $66,500. Purchasers of $36,500 of the Debentures elected to immediately convert such holdings into Common Stock and the Company issued 221,134 shares of Common Stock at an average conversion price of $0.17 per share.

During 2011, the Company issued Debentures totaling $64,000. The purchasers of $49,000 of such Debentures elected to immediately convert such holdings into Common Stock and the Company issued 350,000 shares of Common Stock at an average conversion price of $0.14 per share. The Company closed the offering period for the Debentures in January 2012.

In January 2010, the Company borrowed $40,000 from a Director which the Company used to satisfy certain delinquent payables.

In May 2010, the Company borrowed $20,000 from a Director which the Company used to satisfy certain delinquent payables.

In June 2010, the Company sold its interests in nineteen undeveloped acres in Harrison County, Texas for $60,686.

In November 2010, the Company issued 357,677 shares of its Common Stock (consideration to the vendor of $42,921) in partial payment of a delinquent payable due a vendor of a subsidiary of the Company.

In January 2011, an unrelated party loaned the Company $60,000. The note requires monthly payments of principal and interest (5.5%) totaling $2,645. The maturity date of such loan, as amended and restated, is March 12, 2012, with a scheduled final payment of $28,595.The Company used the proceeds to satisfy certain delinquent payables. In connection with this loan, the Company issued warrants for the purchase of 500,000 shares of Common Stock at a purchase price of $0.15 per share. The warrants expire on December 31, 2015.

On July 12, 2011, the Company entered into a Settlement Agreement with Dov Amir (“Amir”), a former director of the Company (see Part II, Item 5), whereby, among other provisions, (a) the Company issued 412,292 shares of Common Stock ($0.25 per share) in payment of a portion of amounts due to Amir on a note payable ($45,485) and Series A Preferred Stock Dividends ($59,338); (b) the option granted to Amir in December 2009 to purchase 500,000 shares of Common Stock became fully vested; (c) certain assets of Amir shall remain pledged as collateral for the Company’s note payable to First Citizens Bank; and (d) the Company entered into a note payable to Amir for the balance of all amounts due Amir ($391,154). The note matures on December 31, 2015 with interest at 4% per annum, compounded annually. The note does not require any interim payments by the Company. Further, Amir was granted the right to convert any and all amounts due him under the note into shares of Common Stock at a conversion price of $0.25 per share.

Commercialization of Existing Assets

The Company has identified fifteen (15) potential development and redevelopment opportunities associated with its existing leasehold acreage in Texas. The economic viability and development timing of these opportunities were evaluated in terms of the prevailing market conditions as part of the Company’s annual reserve estimates. The development timing is impacted by producing wells as certain acreage is not available to be included in a developmental unit until production from certain currently producing wells becomes uneconomic. At September 30, 2011, such reserves were reclassified from proved to probable reserves as no progress was made during fiscal 2011 to convert such reserves to proved developed reserves. The Company believes that the potential for the development of such locations will occur within the next few years as a result of renewed interest in the area of its properties. The prevailing oil price and the development of properties in “resource plays” in the area of the Company’s acreage are major factors contributing to such interest. At September 30, 2011, the Company has assigned probable and possible reserves to the fifteen (15) potential developmental locations. The Company is actively seeking financing of approximately $2.5 million for its share of the estimated drilling and completion costs of such development opportunities. To obtain the capital necessary to develop these, the Company (1) continues to seek project specific funding commitments and other capital funding alternatives and (2) is evaluating the sale of certain oil and gas producing properties.

The Company continues to pursue plans to commercialize its kaolin and zeolite projects which are critical for the Company to achieve profitability and establish the Company as a market innovator in industrial minerals. Those plans have progressed from the data acquisition and analysis phase into ongoing mineral processing and facility design phase. The Company and its current partner and potential other partners are actively investigating various commercial applications for its mineral based products. The Company continues to focus on establishing business and or financial relationships that will provide the necessary capital to effectively exploit its kaolin and zeolite mineral resource holdings.

Zeolite

In respect to sanitary wastewater treatment applications, the Company continues to supply material for use in a sequential batch reactor facility located in Pennsylvania and the Company has provided material for a confirmation test of the use of its ReNuGen^(TM) product in an alternate design treatment plant. Certain small scale tests have progressed to the point where larger scalable pilot tests of commercial applications for zeolite are in progress in respect to soil additives, animal waste treatment and treatment of industrial wastewaters.

In October, 2009, the Company entered into an agreement to sell zeolite to be used in certain agricultural applications limited to feed supplements in a ten state area in the south-central part of the US. The Company has made limited shipments since fiscal 2010. The development of this market has been hampered as a result of economic and environmental factors affecting the purchaser. The Company anticipates that it will continue to sell material but cannot predict when, or if, increased shipments might occur.

In February 2010, the Company entered into a License Agreement concerning two US method patents for the treatment of wastewaters. Such patents utilize the Company’s zeolite. The license applies to the US and covers the use of the technology in water, wastewater and waste treatment in animal feed operations, agriculture, and aquaculture. In addition, the license applies to the treatment of sanitary wastewater on Federal facilities, military bases and lands administered by the US Bureau of Indian Affairs. The Company issued 140,000 shares of its Common Stock in consideration for the License Agreement. The Company recorded $40,907 as Patents License Rights based on an average price of $0.29 per share.

On April 8, 2011, in connection with the efforts of the Musser Group, the Company entered into a Material Supply and Joint Venture Agreement between CAMI (wholly-owned subsidiary) and VitaminSpice, Inc. (“VSI”) pursuant to which CAMI agrees to supply Clinoptilolite (zeolite) to VSI in connection with the introduction by VSI of detoxification products into targeted geographic markets. VSI is obligated to utilize CAMI as its sole supplier of Clinoptilolite. The agreement does not specify any minimum quantity supply requirements of CAMI. In addition to an initial price per ton for Clinoptilolite to be sold to VSI, CAMI will share in the profits from the sales of such products by VSI. CAMI has provided material to VSI for use in product and market strategy development, as well as potential clinical studies. During fiscal 2011, the Company made no shipments of product to VSI. As of January 15, 2012, the Company has not received any orders from VSI. Should VSI not meet certain performance standards as set forth in the agreement, the Company plans to give notice to terminate the agreement pursuant to the provision in respect to termination for cause in April 2012.

Kaolin

The efforts of the Company and Tecumseh Professional Associates LLC to evaluate the Sierra Kaolin deposit are ongoing. The venture’s efforts to commercialize the Sierra Kaolin deposit have focused on an initial target area encompassing approximately 32 acres out of the project’s 2,740 acres. The test minerals extracted from the target area have been processed into product formulations determined by independent consultants to be suitable (a) for coatings, fillers and pigments for use within the paint and paper manufacturing industries, and (b) as an additive in cement formulations. The analysis results of the processed minerals with respect to its physical properties including brightness, color, opacity, strength, and oil absorption have indicated that commercially viable products can be produced from the deposit’s extracted minerals.

In December 2009, the proposed Sierra Kaolin Open Pit Clay Mine project cleared the regulatory review process and the project’s definitive USDA Forest Service Plan of Operations was approved. Mine site plans have been prepared to facilitate planned extraction operations. The venture, with the assistance of its consultants, has made technical presentations of the product formulations to entities active (a) in the specialty cement applications and (b) on both the demand and supply sides of the coatings, fillers and pigments sectors of the paint and paper industries. While the feedback from these presentations has been encouraging, market conditions within the paper and housing industries have not been favorable; however, interest in the Sierra Kaolin deposit for use in meta-kaolin applications has remained favorable. As such the project manager is focusing its commercialization efforts in this area.

Off-balance Sheet Arrangements

The Company has no “off-balance sheet arrangements” and does not expect to enter into any such arrangements in the foreseeable future.

CRITICAL ACCOUNTING POLICIES

There have been no changes in significant accounting policies from those disclosed in the 2011 Annual Report on Form 10-K.

RECENT Accounting PRONOUNCEMENTS

See Note 2 of the Notes to Unaudited Consolidated Financial Statements..

Forward Looking Statements

The forward-looking statements in this section and other parts of this report involve risks and uncertainties including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of various factors. See the “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” contained on page 3 of this Quarterly Report on Form 10-Q.

All forward-looking statements speak only as of the date made. All subsequent forward-looking statements are expressly qualified in their entirety by the cautionary statements above. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement or reflect events or circumstances after the date on which the forward-looking statement is made, or to reflect the occurrence (or non-occurrence) of anticipated (or unanticipated) events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

None.

Item 4. Controls and Procedures.

Based on management’s evaluation (with the participation of our Interim Chief Executive Officer and Chief Financial Officer), as of the end of the period covered by this report, our Interim CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Code of Ethics

The Board of Directors of the Company has adopted a Code of Ethics (see Exhibit 14.1 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007) for all of the Company's employees, officers and Directors. Each officer and Director of the Company annually affirms that he has read the Company’s Code of Ethics and agrees to be bound thereby.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

June 2009 Private Placement

During June 2009, the Company offered a Private Placement under the provisions of Regulation D promulgated under the Securities Act of 1933, as amended (the “2009 Private Placement”). The 2009 Private Placement consists of up to Five Hundred Thousand Dollars ($500,000) of 7.25% Convertible Debentures (“Debentures” or “Debenture”). The Debentures offered by the Company, are five (5) year instruments maturing on July 30, 2014, bearing interest at seven and one quarter percent (7.25 %) per annum on the balance outstanding from time to time. Interest will commence to accrue immediately upon issuance of the Debentures and will be paid quarterly on each September 30, December 31, March 31 and June 30, which the Debentures are outstanding. Payment of principal will commence on September 30 following the second anniversary of the Closing Date of this Offering. The debentures are convertible at a conversion price equal to the greater of either $0.14 per share or an amount equal to 80% of the average of the closing bid and ask prices of the Common Stock for the 5 trading days immediately preceding the conversion date. Through December 31, 2011, this private placement raised $259,000 (net of fees and expenses) for the Company. The Company utilizes the proceeds of this private placement for general working capital purposes.

During fiscal 2010, the Company issued Debentures totaling $66,500. Purchasers of $36,500 of the Debentures elected to immediately convert such holdings into Common Stock and the Company issued 221,134 shares of Common Stock at an average conversion price of $0.17 per share.

During fiscal 2011, the Company issued Debentures totaling $64,000. The purchasers of $49,000 of such Debentures elected to immediately convert such holdings into Common Stock and the Company issued 350,000 shares of Common Stock at an average conversion price of $0.14 per share. The Company closed the offering period for the Debentures in January 2012.

Vendor Settlement

In November 2010, the Company issued 357,677 shares of the Company’s Common Stock (consideration to the vendor of $42,921) to a vendor as partial consideration in settlement of amounts owed to such vendor by the Company.

Settlement Agreement & Convertible Note Payable

On July 12, 2011, the Company entered into a Settlement Agreement with Dov Amir (“Amir”), a former director of the Company, whereby, among other provisions, (a) the Company issued 412,292 shares of Common Stock ($0.25 per share) in payment of a portion of amounts due to Amir on a note payable ($45,485) and Series A Preferred Stock Dividends ($59,338); (b) the option granted to Amir in December 2009 to purchase 500,000 shares of Common Stock became fully vested; (c) certain assets of Amir shall remain pledged as collateral for the Company’s note payable to First Citizens Bank; and (d) the Company entered into a note payable to Amir for the balance of all amounts due Amir ($391,154). The note matures on December 31, 2015 with interest at 4% per annum, compounded annually. The note does not require any interim payments by the Company. Further, Amir was granted the right to convert any and all amounts due him under the note into shares of Common Stock at a conversion price of $0.25 per share.

Options and Warrants

There were no options awarded or warrants granted for the purchase of shares of Common Stock or Preferred Stock during the three months ended December 31, 2011, nor were any options or warrants exercised.

Options to purchase 2,350,000 shares of Common Stock are outstanding as of December 31, 2011. The exercise prices for the options range from $0.21 per share to $0.28 per share (average exercise price of $0.22 per share).

At December 31, 2011, warrants for the purchase of 3,100,000 shares of stock at an average exercise price of $0.15 per share are outstanding.

Issuer Purchases of Equity Securities

The Company does not have a stock purchase program for its equity securities.

Item 3. Defaults Upon Senior Securities.

The Company is in default of certain obligations as discussed in Note 1 of the Notes to Unaudited Consolidated Financial Statements.

The arrearage in respect to dividends on Series B Preferred Stock totals $1,943,796 at December 31, 2011.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Sale of Oil and Gas Property Leasehold Rights

The Company filed a Current Report on Form 8-K on January 23, 2012, reporting the entry into a material definitive agreement. On January 20, 2012, the Company entered into a purchase and sale agreement (the “PSA”) pursuant to which the Company has agreed to sell certain oil and natural gas leasehold rights for cash of $898,355, subject to adjustment as to any title defect that is not cured within the timeframe permitted by the PSA. The closing date is February 15, 2012, or such other date as the sellers and buyer may designate (the “Closing Date”). The sale is effective as of the Closing Date. The PSA provides that the buyer may have additional time to review the sellers’ title.

In the event the buyer asserts a title defect, the Company will have not less than ten working days following receipt of such assertion to cure such title defect so as to be able to deliver to buyer marketable title or to remove the defective lease from the transaction. A provision of the PSA requires that the Company shall not make any public announcement or statement concerning the PSA other than that which the Company is required to disclose on Form 8-K and other filings with the Securities and Exchange Commission.

On February 14, 2012, the Company delivered certain title documents to the buyer to enable buyer to conclude its review of title. The buyer requires an additional period of time to finalize its title review. Although the buyer has not asserted a title defect, Sellers agreed that the title review period would be extended until on or about March 6, 2012.The Company will recognize a gain in the amount of proceeds ultimately received.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

The Company filed a Current Report on Form 8-K on January 23, 2012, reporting a notice of delisting or failure to satisfy a continued listing rule or standard reporting that on January 20, 2012, the Company received an OTCBB Delinquency Notification dated January 17, 2012 from the Financial Industry Regulatory Authority as the Company is delinquent with respect to filing its Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (the “2011 Form 10-K”). A fifth character “E” was appended to the Company’s securities on January 18, 2012. Pursuant to NASD Rule 6530, unless the Form 10-K has been received and time stamped by the SEC’s EDGAR system by 5:30 p.m. EST on February 16, 2012, the securities of the Company will not be eligible for quotation on the OTC Bulletin Board (“OTCBB”) and therefore, will be removed.

The Company filed the 2011 Form 10-K on February 15, 2012. The fifth character “E” which had been appended to the Company’s securities was removed on February 16, 2012.

Item 6. Exhibits.

Exhibit Number	Description	Located At
31.1	Certification of Interim Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
31.2	Certification of Chief Financial Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith

The Registrant incorporates by reference its Exhibit List as attached to its Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DALECO RESOURCES CORPORATION
	(Registrant)

Dated: February 21, 2012		/s/ Gary J. Novinskie
		Gary J. Novinskie
		Interim Chief Executive Officer, President, Chief Financial Officer and Director (Principal Executive Officer and Principal Financial Officer)

Dated: February 21, 2012		/s/ Richard W. Blackstone
		Richard W. Blackstone
		Vice President and Chief Accounting Officer (Principal Accounting Officer)

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